Going down. The almost certain demise of the Sky Blues.

The agreement has been signed and the deal has been given the green light by the Football League.  Coventry City are set to leave the city and the Ricoh Arena to relocate to Sixfields in Northamptonshire, some 35 miles away.  However, the dispute rages on.  ACL, the landords at the Ricoh, have announced that they will take all necessary action against Northampton Town FC (NTFC) to recover losses resulting from the club breaking the terms of it lease and licence at the Ricoh should games be played in Northampton.  NTFC have responded by suggesting that the threatened action is ‘without any legal merit’ and go on to state that ‘they will not be bullied’.   It is likely that the arrangement is between NTFC and Otium Entertainment Group Ltd, the proposed new owners of CCFC Ltd.  The lease agreement for the Ricoh is between ACL and CCFC Ltd. James Powell, of Walker Morris, acting on behalf of ACL, has stated that

this is a straightforward and bog-standard area of contract law. There is a contract between ACL and the football club.

Former CCFC Ltd Director, Gary Hoffman, has upped the stakes further by offering to pay the rent due on the Ricoh for the next three years, along with compensating NTFC for breaking the contract to pay there, in return for a share of the increased revenues that would result from the club playing home games, at home.  The clubs website offered this response

We wouldn’t want to raise fans’ hopes given that the main source of income whilst playing at the Ricoh was ticket receipts and it certainly doesn’t make sense to describe the deal as an “offer to pay arena rent”.

During the 2010/11 season the club had an income as recorded in CCFC Ltd accounts to May 2011 of £10.2 million, of which £3.9 million was recorded as ‘net receipts from league and cup matches and executive box rentals’.  According to the Administrator and Tim Fisher, CEO of Otium, CCFC Holdings Ltd was the club, but this company reports income only from sponsorship and advertising activity, with no income from match receipts so unfortunately we are forced to ignore their declarations for the purposes of analysis.  The main source of income was clearly from commercial activities, which totalled £6.3 million.  Maybe the official response was a play on words – the main source from the Ricoh alone being ticket sales, in reference to the lack of access to other streams of income.  And that has been a major stumbling block throughout the negotiations.

It looks as though positions are entrenched.  But what are the financial implications on insisting that the club must play at Sixfields?  Fisher has stated he expects attendance figures of around 3,000, down from an average of 19,124 when SISU took control in 2007/08 as the recession kicked in.  The average attendance for the 2010/11 season was 16,307 which bought in £10.2 million to CCFC Ltd.  Attendances had fallen to 15,120 for the 2011/12 season, which according to the Administrators first report resulted in a drop in income to £9.4 million, presumably taken from management accounts for the club as a whole whilst in the Championship.  During the first season in Division One for 2012/13, no figures are yet available, but with attendances falling to 10,973 and a reduction in income from TV rights, the income is likely to be significantly lower.  Tim Fisher, CEO of CCFC Ltd claimed in May 2012 that

The financial impact of relegation to League One has been to reduce the club’s revenues by half – virtually overnight.   

This was a prediction.  And from Fisher.  It was claimed during an interview in which he was emphasising the need for income streams to be increased through the access to food and beverages revenue at the Ricoh and so is likely to be overly cautious.  The figures for last season will have been boosted by a Capital One Cup game at the Emirates along with an FA Cup tie at White Hart Lane, both of which were sell-outs, albeit from heavily discounted ticket sales for the tie against Arsenal.  The club also played two additional FA Cup ties due to lower status, along with a semi final place in the Johnstone Paint Trophy, but these would not increase flows dramatically.  A fair estimate would give the club around £7 million worth of income from an average stadium attendance of around 11,000.

Somehwat surprisingly, and I am sure an economist would laugh at the simplicity, but there appears to be a consistent relationship between the total attendance figures and total income.  Total income includes sponsorship deals, TV rights and sales in the club shop, along with ticket sales.  It would appear that the club’s attendance for the year, based on 25 games in a season, brings in around £25 per head in total.

 
2011
2012
2013
2014
 
 
 
 
 
Attendance
407,675
378,000
274,325
75,000
Income
£10,200,000
£9,400,000
£7,000,000
£1,900,000
Average per fan
£25.02
£24.87
£25.52
£25.33

It is worth bearing in mind that income is likely to fall further this season due to the ending of the relationship with City Link as shirt sponsors, worth a reported £300k per year.  No replacement has been announced and with so much time and energy invested in the administration process and hunt for a new stadium, it seems unlikely that a deal of a similar value will be agreed any time soon.  Maybe a deal will be struck with the construction company of the new stadium, should one be appointed, to off-set the advertising revenue against the construction costs?   However, the finer points of the deal with NTFC have not been released, which may include revenue from advertising around the ground and other match day sales to boost income that may counteract some of the losses from the lack of shirt sponsorship and any drop in merchandising.  The £2 million income does look low, but other sponsors have also pulled out from contracts recently. So, if the ratios are reproduced, the club is looking at an income of around £1.9 million from a gate of 3,000 per match.  FFP imposes a cap on wages set at 60% of total income which gives the club around £1.3 million to spend on wages.  What does history suggest you get for that amount?

If we look at the financial reports for clubs in Division One, we can try and calculate the wage levels for recent seasons.  One of the problems you face when trying to compare clubs financial records is the lack of uniformity in the data submitted.  For example, Bury, Hartlepool, Daggenham and Redbridge, Exeter and Rochdale submit abbreviated accounts which as the name suggests lack any detail to analyse, so we cannot gain access to income or expenses, whilst Chesterfield appear to be an off shore company and so do not submit accounts to Companies House in the UK.  I have collected data on the following clubs – Charlton, Sheffield Wednesday, Huddersfield, Wycombe, Scunthorpe and Bristol Rovers (see end for PDF).  These submit full accounts that state the wages paid but do not separate out the players and management from other staff in the totals.  Companies have to report on the average number of employees, but some clubs will include stewards and match day catering in this figure, along with commercial staff and the players, where others will separate out the playing staff.

In order to calculate the rate of pay for non playing staff, I have removed stewards and catering where necessary to leave a ‘sensible’ number of commercial staff.  I  have not made any allowances for payments to academy players who fall outside of FFP regulations but may well be considered playing staff at some clubs in historic reports.  So there should be an allowance made for margins of error when looking closely at the data. I have calculated that the commercial staff would be paid on average £20k a year and then deducted that from the total wage bill to suggest a total for the playing staff.    It would appear that the more you pay in wages, the better the league position.  Of the clubs on the list, Charlton paid £7.8 million to players, Sheffield Wednesday £7.2 million, Huddersfield £5 million and were all promoted.  Wycombe were relegated in 2012 and paid £2.8 million with Scunthorpe £2.7 relegated this season and Bristol Rovers £1.9 million, relegated in 2011.  The other clubs relegated this season all submit abbreviated accounts, and so by including other clubs relegated in different years we are not comparing the data to the year demotion occurred, but the pattern is fairly consistent.  There could be flaws in the data but the theme to the outcome is apparent.  You get what you pay for. This is confirmed in the book ‘Soccernomics’, written by the economist Stefan Szymanski and journalist Simon Kuper.  They have collated extensive data that highlighted patterns that suggest that wage rates were far more reliable an indicator of success in determining league position than rates of transfer fees.  They declare that

Wage spending explains 87% of the variation in league position

Of course, next season we will see the introduction of the wage caps imposed via FFP.  If we were to recalculate the spend in relation to income and ensure the clubs comply with the regulations, Charlton would be able to budget for £5.1 million to spend on players, Sheffield Wednesday £6.6 million, Huddersfield £3.3 million and the likelihood is that all would still be successful.  Wycombe would be able to pay around £2.7 million, Scunthorpe £1.9 million and Bristol Rovers £2.7 million.  Overall, the more successful clubs will have to make the deepest cuts to their player budgets, with strugglers less so, but the promoted clubs would still have the larger wage bills.  The pattern remains – the more you have to spend, the more likely it is you push for promotion; the less you have, the more likely it is that a relegation battle looms.  It is worth bearing in mind that the more successful you are, the greater the gates and revenues in that season, but how can you budget for that before a ball is even kicked? This exposes a flaw in the regulations –  clubs that have a poor season where fans desert them could then be penalised by the Football League for aspiring to greatness some nine months previously.

This all supposes that FFP will be enforced.  The FL have implied there will be rigorously applied repercussions if limits are not adhered to.  However, the FL have a whole raft of regulations that need to be complied with when taking ownership of a club or when a company associated with a club undergoes administration.  These regulations appear to have been breached by CCFC Ltd and by the directors on several points and have not been enforced with any rigour thus far.  The whole process has exposed these regulations as unfit for purpose. It remains to be seen how ruthlessly the board will apply the regulations under FFP.  If the league do enforce FFP to include only football related revenue as income and exclude loans introduced to cover losses incurred, then the budget for the playing staff at the club will be around £1.3 million, a full £1.5 million less than took Wycombe down and a £9 million reduction from the £10.3 million paid out in total wages by the Sky Blues in 2011.  The club would need to boost income to around £6 million just to compete with Wycombe’s very low budget for playing staff.  If history and statistics are proved right once again and Otium do not take up the offer to open negotiations to ensure the team play at the Ricoh in front of larger crowds, the club look a certainty for relegation.  The options are there for the club and Fisher to pursue if they so wish, to ensure that, for Coventry fans, disaster is averted by playing back in Coventry. Anything else shows how little SISU care for the club’s history, traditions and its supporters.

2012 Workings on FL Clubs Accts

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9 Responses to Going down. The almost certain demise of the Sky Blues.

  1. houchen87 says:

    Excellent article. Lets hope we do a Yeovil who got promoted on £1.8m wages I think!

  2. Excellent article while I wonder if Yeovil would have been promoted if a certain club hadnt had transfer embargo, points deduction and the best manager in that league left, if we are lead to believe, was the issue still unresolved. Sisu’s 5 year record is a catalogue of mismanagement and missed opportunity it is the blind folly based on trying to prove a point that is at the heart of this, Fisher’s ego will not enter into re-negotiations with ACL even when evidence says offers were on the table. The end game I believe is Sisu Sky Blues FC, somewhere in North Warwickshire with the golden share to play in division 1. The league have offered them this for just a £1 million pound fine. If only they had a ounce of your understanding and passion for the club.

  3. Perpignan says:

    Very good article as usual. Three aspects that I think could be developed in further articles

    Firstly, these limits don’t apply to the current season, do they? So, if we are at NTFC for only three seasons, this would only apply for two of the three seasons. Plus our first seaon at Brandon. But not long term.

    Secondly, if we do get relegated, presumably the average gates in League Two are much closer to 3000? Why would we not be stable in League Two? Why would that be the “demise” of the club? We were in Division 4 when I was young.

    Thirdly, the SISU strategy is clearly short term pain for long term gain. If we did end up in a stadium at Brandon in a few years time, would that give us a better chance of progressing up the leagues than by losing money weekly at the Ricoh?

    I really appreciate your work.

    • Richard B says:

      FFP comes into play this season – 2013/14.

      The average attendance in Division 2 for 2011/12 was 4,477. At 3,000 the club would be 63rd worst supported out of 72.

      Re the new ground. It took Brighton around nine years from identifying the site and moving in due to objections from local residents, neighbouring councils and a judicial review. I can’t see CCFC getting back to the City for well over 5 years.

  4. Sky Blue CID says:

    Excellent research

    Dreadful conclusion.

    Coventry can’t afford to play at the Ricoh unless ACL negotiate with SISU – which they refuse to.

    The fans could help by rallying to their club, instead of boycotting it.

    The fans are helping to destroy the Sky Blues through ignorance and blind prejudice

    • Ian W says:

      I think the real point is that Coventry can’t afford not to play at the Ricoh. If the crowds at the Ricoh fell by 25% they would still be around 8,000 which at an average of £25 per head income (from figures presented above) they would be £2.875M better off – plenty to pay £400,000 rent each season, and still leave not far short of £3M for player costs, a sum that gives a chance of staying in the league.

      Unfortunately, emotionally I am drained, I can no longer see any way out of the dark place the club is in. I can only see it slipping down and eventually dying a lingering death. In some ways, i just wish the club could be put out of it’s misery now. At least that would give me the chance to come to terms with things, and to eventually reflect on the good times I remember over the last 50 years of “going up the city”.

  5. Sky Blues says:

    While I agree that the correlation between wages and league position is fairly strong – and therefore a reasonable indicator of likely league position – Yeovil did kind of upset the apple cart this year with their reported £1million budget.

    There is a similar connection between performance and salary in Major League Baseball, but the book Moneyball tells of how the Oakland As managed to go against the grain of that correlation through some canny management. So maybe Coventry’s chances this year will depend on whether we have a canny manager!

  6. Pingback: The Best Sporting Blogs from the last fourteen days | Talking Sports |

  7. Stupot07 says:

    Interesting article, but with a few flaws. For example championship clubs get £2.3m payment from the PL, where as league one get £360k, so there’s a £2m difference before you factor in 33% drop in ticket sales, reduced ticket prices, less sponsorship and tv rights. I would say our income with 11k was nearer £5.5-6m than £7m+.

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